Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Consequences – insider trading edition – #6

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Is possible time in jail the only bad thing on the horizon for a CPA accused of insider trading? Not even close. There’s a long list of bad things within view.

This series of posts is examining the possible consequences on the horizon for Mr. Scott London, former KPMG partner, as a result of his indictment for allegedly trading on insider information.

This post will discuss

  • Fodder for armchair psychoanalysis
  • Limited future employability
  • Legal fees for civil litigation
  • Financial devastation

Previous posts are here, here, here, here, and here.

Fodder for armchair psychoanalysis

If it is proved that he did what he is accused of doing, the “why?” conversations will run for months, if not years.

The conversations in print have already started.

Can you imagine being the subject of thousands of conversations by peers in your profession wondering about your mental state?

Is it arrogance? Hubris?

Greed? Stupidity? (I’ve already seen those comments in anonymous postings.)

Does he have some mental illness?

Is he a pathological liar? (Already saw that comment as if it was a statement of fact.)

There will be lots of published articles expounded at length on his motivations and character defects behind the motivation.

CPAs thinking in terms of the fraud triangle will pick apart news reports looking for motivation, opportunity, and rationalization.

The nastiness will run for a long time. Doesn’t matter whether any of the pure speculation is true, or helpful, or grounded in even one fact, or contain any shred of logic.

The psuedo-psychological examinations will be around. For years. In print. Available to everyone with an internet connection.

Limited future employability

With the horrible publicity, visible firing, possible SEC sanctions, and possible loss of his license, his opportunities for gainful employment between now and when he hits retirement age are extremely limited.

I have no idea what the court orders look like in the federal system. For research on other blog posts I’ve written, I have read a few of the court orders for criminal cases in San Bernardino County, California, where I live. They contain clauses that make a person with financial skills essentially unemployable.

One set of court orders I read required the individual to disclose to a potential employer his conviction and the circumstances behind it. The individual is not allowed to have custody of anyone else’s cash and cannot be a signer on someone else’s bank account. That just about rules out any employment using the skills that particular person has.

From what I’ve read in the past, the SEC enforcement action will have some rather strong terms attached to it which will further limit employment opportunities with any company that has any involvement with the securities market.

How much you suppose his future earnings are going to drop? Think it will only be 90% (i.e. a drop to maybe $100k a year)? Or will be more like 95% or 98%?

Legal fees for civil litigation

It will take some serious time from some highly skilled attorneys to handle the litigation promised by KPMG.

That talent? Expensive. The bill? Big.

Financial devastation

I can’t even make any wild guesses on the final tally for all of the consequences I’ve listed. I’m thinking it will be measured as a percentage of his lifetime earnings.  Perhaps an amount equal to 25%, 50%, or maybe 100% of all the money he’s ever earned.

It is sufficient to say the impact on the family finances will be devastating.

Even if the CPA or his golf buddy have enough assets to cover the cost, it will be a catastrophe. There are very few people who could absorb those costs and still be financially stable afterwards.

Next post: conclusion (finally!)

Written by Jim Ulvog

April 19, 2013, 7:00 am at 7:00 am

Posted in Audits

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